Mortgage approvals back on the rise in June after a four-month decline

Mortgage approvals increased for the first time in five months in June as stricter rules around home loan applications started to bed in, according to lenders.

Data from the British Bankers' Association showed that some 68,121 mortgages collectively worth £10billion got the green light last month, marking a 4 per cent month-on-month increase in the number of approvals and the first monthly upswing since January.

Within the latest numbers, some 43,265 approvals with a total value of £6.9 billion were for home buyers, representing a 14 per cent increase on June 2013.

Sale: Homebuyers are still keen to get a mortgage despite the new rules which are more rigourous than before

Richard Woolhouse Chief Economist at the BBA said: ‘These figures show that mortgage approvals are rising again after four months of decline.

'That's encouraging because those decisions are a leading indicator of what's happening in the housing market.

‘But the jury is still out on exactly how the new rules are affecting customer applications or approvals,' Woolhouse added.

Mortgages: Gross mortgage borrowing of £11.2 billion was 24 per cent higher than in June last year

At the end of April, toughened mortgage lending rules came into force under the Mortgage Market Review (MMR) which forced lenders to spend more time sifting through evidence to back up what mortgage applicants said about their spending habits, in order to make sure they could afford their loan repayments, both now and as and when interest rates eventually rise.

In practice, lenders had been gearing up for the rule changes several weeks before they were introduced.

The BBA report said that implementation of the MMR 'might have slowed down (the) processing of applications in the earlier part of the year'.

There has been a great deal of debate over what impact these new mortgage rules would have on lending, with fears that the onerous and intrusive checks to prove what an applicant could afford would put buyers off.

The Financial Conduct Authority said the new stress test was put in
place to allay concerns about short-term shocks to people’s mortgages
which could mean they struggle to repay their loans.

The BBA found that during the early months of the year mortgage approvals were down, but by June, rates had gradually improved.

At present, gross mortgage borrowing of £11.2 billion is 24 per cent higher than in June last year.

Since the turn of the year, the overall mortgage stock started to rise on increased demand and was 1.1 per cent higher than a year earlier, a contrast with much of 2013, the BBA said.

Approvals: Having declined during the early months of 2014 mortgage approvals were up in June

But despite recovering slightly, the latest mortgage approval total is still nearly 12,000 lower than the 79,923 mortgage approvals recorded in January.

Around that time, many lenders were unveiling a stream of new low-deposit deals under the Government's Help to Buy mortgage support scheme.

The Bank of England has also recently announced new curbs for the mortgage market, saying that loans of 4.5 times a borrower's income or higher should account for no more than 15 per cent of new mortgages issued by lenders.

Nationwide and Santander became the latest major lenders to tighten their mortgage lending rules this week.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: 'Mortgage approvals are on the rise once more after four months of decline, which may come as a surprise as many agents are now talking of a cooling off in the housing market.'

Earlier
this month the latest report from the Royal Institution of Chartered
Surveyors showed there was ‘more buyer caution’ with fewer people showing
an interest in buying a home.

The Halifax monthly house price index also showed that house
prices have fallen in three of the last four months, dropping in March,
April and June.

Growth: Personal deposits are growing by 3.6 per cent annually

Harris added: 'Remortgaging is down
on the same period as last year - perhaps surprising with the excellent
mortgage rates still on offer and the fear of an interest rate rise
which should encourage borrowers to ditch their lender's standard
variable rate.

'MMR is likely to be having an impact here:
either homeowners are struggling to remortgage under the new rules or worry
that they will, and so are not bothering even trying.'

Howard Archer, chief UK and European economist at IHS Global Insight, said: ''It
does look likely that the new regulations under the MMR have had some
dampening impact on activity even allowing for banks taking time to
adapt their procedures.

'Buyer
interest is still relatively elevated even if it has come off peak
levels, and it is likely to continue to be supported by substantially
improved consumer confidence, markedly rising employment, and still low
mortgage interest rates (even if they start to rise before the end of
the year, they will still be very low compared to past norms).

'It
is also currently being supported by the Help to Buy initiatives.
Furthermore, earnings growth is expected to improve over the coming
months despite April/May’s weakness,' he added.

Borrowing: BBA found unsecured borrowing grew by 1.3 per cent over the past year

But confidence in the economic recovery is on the rise after the BBA found consumers' borrowing using personal loans and overdrafts was showing annual growth after contracting for a long period, reflecting improving confidence in the economy.

The trade body said non-mortgage borrowing had grown by 1.3 per cent over the past year. Within this, credit card borrowing had seen growth of 1.8 per cent, while growth in borrowing using personal loans and overdrafts had accelerated to 0.9 per cent.

Looking at savings, the report said there had been a lower take-up of Isas this year so far, with £4.8billion being deposited during March to June compared with almost double this amount, at £9billion, during the same period a year ago.

From July 1, the Government re-vamped Isas to create a new ‘super Isa’, which had almost trebled the amount of money that people could put away annually tax-free in cash.

The new Isa allowance, which was unveiled in the March Budget, permits people to put away up to £15,000 in cash, stocks and shares, or any combination of the two.

Some pundits have suggested that savers may have been hanging on to see if lacklustre Isa rates on offer from providers showed any sign of improvement after the launch of the new, more flexible Isa.

The BBA also said that borrowing by non-financial companies declined in the year to June by £12.7billion.

Much of this decline had been due to the real estate sector, whereas improved lending growth was being seen in the manufacturing, wholesale and retail sectors, it said.

Borrowing by non-financial companies declined in the year to June by £12.7 billion